Romania Business Forecast Report Q3 2012

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Romanias return to growth since 2011 has so far been driven primarily by export demand. As the eurozone sovereign debt crisis weighs heavily on this previous growth driver, we expect domestic economic activity to cool despite looser fiscal policy following two years of severe IMF-led fiscal austerity. We forecast 2012 headline growth of 1.0%, compared with 2.5% growth in 2011. We forecast Romanias current account deficit to widen to 4.7% of GDP in 2012, from an estimated 4.2% in 2011, as external demand for the countrys exports cools. That said, we expect continued improvement in investor confidence, and our previous expectation that Romanias narrowing financial and capital account surplus would be unable to finance a widening current account deficit in 2012 no longer holds.

Major Forecast Changes

We have revised down our forecasts for Romanian real GDP growth in 2012 and 2013, to 1.0% and 2.1% respectively, from previous forecasts of 2.5% and 2.9%. Our significantly weaker outlook for the global economy, combined with the countrys high exposure to peripheral eurozone banks, is set to drag headline growth lower. We have modestly revised our forecast for Romanias 2012 budget deficit to 3.2% of GDP, from 3.0% previously. Weaker economic growth and a renewed bout of investor risk aversion that will delay the IMF-led privatisation agenda will weigh on government revenue.

However, cross-party commitment to the countrys IMF Stand-By Arrangement, and future spending restraints, mean we expect the budget deficit to remain within the EU-defined 3.0% of GDP limit from 2013 onwards. We have revised our average 2012 and 2013 leu exchange rate forecasts to RON4.4200/EUR and RON4.4500/EUR respectively, from RON4.3900/EUR and RON4.4000/EUR previously. Although our fundamental view for the unit to remain relatively stable in the medium term remains unchanged, the leus recent weakness indicates that the currency is set to trade within a higher range than we previously expected.

Risks To Outlook

Downside Risk To Growth Forecast: The eurozone sovereign debt crisis presents a substantial risk to global and thereby Romanian economic growth. Although our core scenario is for policymakers to reluctantly take the action necessary to contain the crisis, there is still a risk of a disorderly outcome, potentially catalysing a renewed global downturn. Romania would be extremely vulnerable under such a scenario.

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Select License Type

£767.27

Electronic License

Electronic License

An electronic version (mostly PDF, but can be Excel or PPT), which is either available for immediate download or will be sent via email by the Publisher of the report. The licencing for an electronic version is for use by the purchaser ONLY.

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